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Economic Review

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Nov/Dec, 1990

Ricardo Versus Thornton on the Appropriate Monetary Response to Supply Shocks

Thomas M. Humphrey

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David Ricardo (1772-1823) recommended countering supply shocks with monetary contraction. Henry Thornton (1760-1815) advised a constant-money response. Their views hinged (1) on the neutrality or non-neutrality of money-stock changes on real output and employment and (2) on the costs of inflation. These same considerations influence Federal Reserve policy in response to oil shocks today.

Karl Rhodes
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